MBA, Trade Groups file Amicus Brief in PHH Case

The Mortgage Bankers Association and a dozen other industry trade groups weighed in on a heavily watched lawsuit against the Consumer Financial Protection Bureau, supporting PHH Corp.’s assertion that the Bureau misinterpreted the Real Estate Settlement Procedures Act in enforcing penalties against PHH.

MBA and the trade organizations filed an amicus brief in support of PHH on March 10. The brief focuses on important RESPA and due process issues raised in the case.

The case, PHH Corp. vs. CFPB, is unusual, in both the size of the penalty the CFPB imposed on PHH ($109 million) and in that PHH decided to fight back (and, in the process, scored several legal victories against the CFPB). The Bureau announced its investigation of PHH, based in Mount Laurel, N.J., in 2014, alleging that PHH illegally referred consumers to its partner mortgage insurers and that it took reinsurance fees as kickbacks, in violation of RESPA.

PHH moved for dismissal of the Bureau’s charges and denied the allegations, arguing that its reinsurance practices were approved by HUD and that the Bureau’s claims fell outside a three-year statute of limitations under RESPA and the Dodd-Frank Act. PHH also questioned the constitutionality of the CFPB, calling it an “unconstitutional, superexecutive agency.”

After some early setbacks, PHH achieved a stunning legal victory in the U.S Court of Appeals for the District of Columbia this past October. The Court ruled that the CFPB’s structure was unconstitutional and that its application of RESPA against PHH was wrong. It further upheld a three-year statute of limitations on actions the CFPB could take against institutions.

The CFPB appealed. Oral arguments in the U.S. Court of Appeals for the District of Columbia Circuit begin May 24.

The MBA/trade group brief focuses on RESPA. “The underlying Bureau Order misread RESPA, overturned decades of settled interpretations without any notice, and disrupted a large sector of the economy,” the brief noted “The panel’s decision correctly restored the status quo, and Amici urge the en banc court to let that decision stand.”

The brief asserts that “sustainability and continued innovation and growth of [the housing market] depend on clear, predictable legal rules…since 1974 RESPA has regulated this market and thousands of lenders and services providers have ordered their affairs in reliance on that law and endeavored to comply with its requirements.”

The brief also asserts that HUD guidance on RESPA have been used by lenders since 1997 and that the CFPB, which received RESPA authority under Dodd-Frank, upended those guidance with its misinterpretation of RESPA.

“In taking this course, the Bureau has severely undermined deeply settled reliance interests, to the detriment of Amici, their members, and the customers they serve,” the brief said “The panel correctly held that the [PHH] Order misinterpreted RESPA and violated time-honored principles of due process.”

The brief further asserts that the CFPB order against PHH “cannot be reconciled with RESPA, the Bureau’s governing regulations or longstanding policy guidance.” It said the order is “inconsistent with the Bureau’s regulations, which permit transactions in which real services are provided at market-based prices. Those regulations are binding, unambiguous and irreconcilable with the Order… In abruptly departing from the plain language of the statute, the Bureau’s own regulations, and longstanding guidance for industry, the Order exceeded the Bureau’s authority and violated fundamental tenets of administrative law and fair notice. The Order also raises the troubling specter of further changes without notice, deeply unsettling a market built on predicable legal rules.”

Joining MBA in the brief: The American Bankers Association; the American Escrow Association; the American Financial Services Association; the Consumer Bankers Association; the Credit Union National Association; the Financial Services Roundtable and the Housing Policy Council of FSR; the Independent Community Bankers of America; the Leading Builders of America; the National Association of Federally Insured Credit Unions; the National Association of Home Builders; the National Association of Realtors; and the Real Estate Services Providers Council.